Social Growth: Model of a Progressive Economic Policy Social Growth: model of a Progressive Economic Policy
Details of the Proposal

Preliminary Remark


The concept of »social growth« presented here is the Friedrich-Ebert-Stiftung’s (FES) proposal for a progressive economic policy model. The aim is to develop a growth model that combines prosperity for all with sustainability and justice. Its primary target is Germany, but it is also intended to apply to Europe and globally. Although the progressive economic policy proposed here is focused directly on overcoming the economic and social crisis by means of social and therefore fairly structured growth, its indirect aim is to alleviate the environmental and political crisis in which Germany, Europe and the world find themselves. Social growth, with its focus on education, health, care and climate protection, puts less pressure on natural resources than the conventional market-driven growth model. It also delivers the results that people expect from democratic politics, namely jobs and a share in the prosperity these jobs create. In this way, social growth confers a legitimacy on democracy that seems to have been lost, not so much because of mistrust in its procedures, but rather the paucity of socially acceptable outcomes – in other words, states’ inability to govern markets in the interests of society.


This text is based on a wealth of studies and reflections that have emerged in recent years either within the FES or commissioned by it – partly in the course of the project »Germany 2020« (2007–2009), partly within the framework of its successor project »Social Growth«. The long bibliography includes these publications, but also reflects the diverse contributions of prominent experts. Within the FES, René Bormann, Michael Dauderstädt, Philipp Fink, Sarah Ganter, Sergio Grassi, Björn Hacker, Marei John-Ohnesorg, Gero Maaß, Christoph Pohlmann, Markus Schreyer, Hubert Schillinger and Jochen Steinhilber collaborated within the framework of a task force.





Proposals and abstracts



The economic and financial crisis has laid bare the weaknesses of the dominant growth model in no uncertain terms. Manifestly, this growth, which was largely abandoned to market forces, was not sustainable. Bolstered by a general rolling back of the state and a liberalisation of labour markets, in Germany and indeed worldwide income inequality increased. This was compounded by ever more lopsided economic development, driven by the globalisation of financial markets, leading to an explosion of financial assets and corresponding debts.


Internationally, this development took the form of large imbalances in international trade and capital movements. To this day, the high current account surpluses of some countries are matched by the high current account deficits of other countries. Over the years, these surpluses and deficits have generated a high level of exposure and foreign debts which, together with the public debt which has increased sharply since the crisis, have reached a level that is no longer sustainable. Debt reduction strategies are now therefore called for that generally entail a reversal of current capital flows. However, the burden of adjustment cannot be borne by the deficit countries alone; the surplus countries – and Germany in particular – must also participate.


A simple return to pre-crisis business as usual scarcely seems convincing. If more balanced and social growth is to be achieved we have to bid farewell to the idea of »efficient« financial markets. The crisis has shown that markets are characterised rather by herd behaviour and regularly precipitated changes of »sentiment«. Handing over capital allocation to the financial markets alone has led to colossal errors. In light of these enormous market failures, effective regulation of banks and financial markets and a more emphatic social and industrial policy commitment by the state are called for.


The goal of the social growth model proposed here is a change of course in economic policy and the bolstering of domestic demand. Future growth in Germany is likely to be not primarily in industry but in services. There is a great deal of catching up to do, especially in social services, such as education, health and care. Many needs, in particular those of low and middle income earners, cannot be satisfied because of a lack of purchasing power. That is why a new social, macroeconomically viable, structurally coherent and equitable growth model is needed that can absorb the unemployed or the under-employed in a growing service sector with decent work; increase employment and productivity overall; and improve income distribution.


In order to reduce the inequality which is one of the causes of the crisis tax policy must be used more vigorously, for example, by raising the top tax rate and reintroducing the wealth tax. In order to reduce imbalances in the Eurozone, coordination of wage policies makes sense, as does closer coordination of economic policy, including the surveillance of current account surpluses and deficits. Joint eurobonds could be the beginning of genuine, even fiscal integration within the Eurozone.


Social growth must guide the markets, not only in Europe but also globally, directing their effects along socially desirable paths. This includes minimum standards with regard to working conditions, safeguarding the welfare state and a coordinated global monetary policy that controls exchange rate upheavals that are harmful for the real economy. A progressive economic policy implementing this model should therefore be based on the following ten-point programme:

  • 1. Guarantee a Stable Supply of Credit with Effective Financial Market Regulation.
  • 2. Use Education Policy to Boost the Forces of Growth and Expand Opportunities for All.
  • 3. Open Up New Areas of Growth with Industrial Policy
  • 4. Strengthen the Position of Employees by means of Minimum Wages and Codetermination.
  • 5. Fund Public Tasks Properly and Fairly by Reforming Tax Policy.
  • 6. Stabilise the Economy and the Debt Situation by means of an Anti-cyclical Fiscal Policy.
  • 7. Strengthen Forces for Growth in Europe by means of a Robust Public Financial Architecture.
  • 8. Provide for More Stability in the Eurozone by means of Economic-policy Coordination.
  • 9. Ensure Decent Work for All by means of European and Global Standards.
  • 10. Manage Globalisation by means of a New Economic and Monetary Order


Table of Contents


  • Preliminary Remark
  • Summary
  • 1. The Problem: Unbalanced Growth
  • 2. The Entangled Debate between Market Liberals and Growth Sceptics
  • 3. The Concept of «Social Growth»
    • 3.1 Work, Productivity, Investment
    • 3.2 Demand and Distribution
    • 3.3 State and Market
    • 3.4 European Integration and Globalisation
  • 4. »Compass for the Future«: A Progressive Economic Policy
    • 4.1 Overcoming the Debt Crisis
    • 4.2 Scenarios for a Social Germany
    • 4.3 Sustainable Growth for the World Economy
    • 4.4 Democratic Governance of Interdependent Economies
  • 5. A 10-point Programme for a Progressive Economic Policy
    • 5.1 Guarantee a Stable Supply of Credit with Effective Financial Market Regulation
    • 5.2 Use Education Policy to Boost the Forces of Growth and Expand Opportunities for All
    • 5.3 Open Up New Areas of Growth with Industrial Policy
    • 5.4 Strengthen the Position of Employees by means of Minimum Wages and Codetermination
    • 5.5 Fund Public Tasks Properly and Fairly by Reforming Tax Policy
    • 5.6 Stabilise the Economy and the Debt Situation by means of  an Anti-cyclical Fiscal Policy
    • 5.7 Strengthen Forces for Growth in Europe by means of a Robust Public Financial Architecture
    • 5.8 Provide for More Stability in the Eurozone by means of Economic-policy Coordination
    • 5.9 Ensure Decent Work for All by means of European and Global Standards
    • 5.10 Manage Globalisation by means of a New Economic and Monetary Order
  • 6. Epilogue
  • Bibliography